The Liberal Party’s chief Senate whip, Dean Smith, has called for property investor mortgages to be converted to interest-only in order to free up disposable income and prevent the property market from falling into a tailspin:
[Smith] said up to 730,000 interest-only loans will expire this year and be converted to principal and interest.
“That means these borrowers will have to individually divert thousands of dollars from their disposable income into making principal repayments”…
“At the same time, the hundreds of thousands of investors who have been forced into converting their interest-only loans into principal and interest loans over the past few years are also individually paying thousands of dollars in principal repayments”…
A finance expert with financial services monitoring firm Canstar, Steve Mickenbecker, said the proposal was a “no-brainer”.
He said if interest and principal loans were converted to interest-only, many investors would see their monthly repayments halved.
This seems like a non issue. The banks have already offered mortgage holders six month repayment holidays, thus freeing up cash flow.
Restrictions on interest-only mortgages were also lifted 18 months ago. Thus, there is little preventing investors from refinancing.
The bigger issue for the property market is that lenders are tightening requirements on new loans, including undertaking stricter employment checks of already pre-approved loans.
This risks tanking buyer sentiment, given nobody can be assured they can settle, in addition to driving up failed settlements.
Easy credit was a key pillar of Australia’s property bubble. As such, credit tightening could send the market into a vicious tailspin.
